[Premium] Daily Commentary: On collapsing money supply and Chinese and Japanese current account deficits

This daily commentary is a bronze level members-only post. I saw a number of commentaries this past weekend and late in the week that were gloomier than one would have expected. In the US, consumer credit is expanding as are jobs and most of the data has been robust of late. Yet, the worries about recession continue – with good reason, I might add

Tough medicine and a hard landing for China

Michael Pettis predicts a hard landing in China. How much will growth slow? The World Bank report apparently doesn’t say, but the consensus has been slowly moving down towards 5-6% annual growth over the next few years. That’s better than the crazy numbers of 8-9% most analysts were predicting even two years ago (and some still are), but it is still too high. GDP growth rates will slow a lot more than that. I still maintain that average growth in this decade will barely break 3%. It will take, however, at least another two or three years before a number this low falls within the consensus range

Euro and Yen: Looking for a Black Cat in a Dark Room

Never known for being easy, the euro and yen seem particularly difficult to understand presently. During such times it is often best to return to basics. Foreign exchange reflects the cost of money. So do interest rates. The relationship between the two is not always clear and stable. Recently there have been some shifts in those relationships that market participants should be aware of

Euro Gyrates But Doesn’t Break

The US dollar is trading on the back foot against most EMs and the dollar bloc currencies but is firming against some European currencies after the release of the ECB’s second LTRO in which 800 banks took down €529.5B, slightly above consensus but within expectations

Yen at lowest level against USD since last July

The US dollar is continues its broad rally as doubts over Greece persist, although currencies continue to trade in relatively tight ranges. While European drama continues to command attention, the yen has quietly depreciated and is now at its lowest level against the US dollar since last July and is at four month lows against the euro

Monetary Relief from Asia

The ECB and BOE have shown their intent with their recent aggressive balance sheet expansions and the Fed is trying hard to keep the door open for more QE even as the data in the US continues to defy the general global slowdown.

In Asia however sticky inflation in India, a desire to nail property developers to the wall in China and a belief in a post earthquake in Japan have kept the big Asian central banks from providing additional easing. Even in Australia where the economy has been teetering on the brink of a recession for 6 months, the central bank has refrained from any decisive moves

Currencies Look Past Moody’s Downgrade

The US dollar is broadly mixed against the majors and EMs after the market appears to have shrugged off Moody’s downgrades of European sovereigns. Central banks ability to surprise the market remains intact, even in these trying times. It was the Bank of Japan’s turn today. On the data front, the main focus today is twofold: euro zone industrial production and US retail sales. US retail sales should be supportive of risk appetite this morning with the advanced figure for January seen improving to 0.8% following the disappointing 0.1% in December

The BOJ Surprises, Weakens Yen

Central banks’ ability to surprise the market remains even in these trying times. It was the Bank of Japan’s turn today. It surprised the market in two ways. First, it expanded its asset purchase plan by JPY10 trillion ($128 bln). Second, it set an inflation goal of 1%

Tuesday’s Surprises from Australia and Japan

The dollar is mixed against the majors and EMs but largely remains confined to recent ranges. The EuroStoxx 600 slid for a second straight day, currently down 0.5%; MSCI Asia index holds recent highs. Demand in Greek bill sale eased slightly and refinancing costs moved higher; Portugal’s 10-year up 22bp

Dollar Heading Lower after Constructive Outcome of EU Summit

Dollar is heading lower after the EU summit saw 25 of the 27 nations endorse the new fiscal compact. EuroStoxx 600 is nearly 1% higher as a result, banks up nearly 1.3%; MSCI Asia Pacific index up 0.7%. Japanese data showed a surge in December production; Germany’s Dec. job boost offset by retail sales

Seven Observations about Commitment of Traders in FX

The Commodity Futures Trading Commission requires futures traders to identify whether they have an underlying business interest (commercials) or if they don’t (non-commercials). Here are seven take-aways from the most recent report that covered the week through January 17th

Chart of the Day: Developed economies’ debt levels by sector

This is a great chart below via the Wall Street Journal. It shows the total debt to GDP ratios for the largest developed economies in the world broken down into four sectors: households, non-financial corporations, financial institutions and government